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Business Failures Set To Rocket by 50%

London, UK (08/12/2008)

The number of business failures is predicted to increase by almost 50% next year, according to business advisors BDO Stoy Hayward LLP.

The firm’s Industry Watch report forecasts that as economic conditions worsen, business failures will rise to 21,900 by the end of this year and to 32,300 in 2009, to a peak of 32,400 in 2010. The 2009-2010 figures would follow the highest annual rate of business failures recorded since 1992 when 33,900 businesses failed.

According to the report, the sector that will suffer the most by mid 2009 is construction where a predicted 6,400 businesses will fail. Consumption growth is also set to fall to just one per cent by the end of this year as the economy starts to retract and consumers tighten their belts.

But much worse is to come in 2009, with rising unemployment and weakening earnings growth compounded by increases in savings. Falling inflation will only partially offset these effects as consumption in 2009 is predicted to decline by 1.5%.

Despite the gloomy projection, UK business should draw confidence from the economy being in a different position than in previous recessions, suggests Shay Bannon, Head of Business Restructuring at BDO Stoy Hayward. He explained: “Despite the pessimistic outlook in the short term, the UK economy is in a better position in this stage than in recessions seen before; low interest rates and inflation gives the UK strong economic foundations for recovery.”

“The PBR measures should act to mitigate some of the effects of the financial crisis intensification and prevent growth falling below the -1.25% limit of the Treasury forecast but this all seems too little too late for those UK businesses which will not survive the downturn. All sectors across the economy will be hit over the next eighteen months as all businesses feel the impact of the challenging environment.”

"It is important that businesses now, more than ever, focus on managing and sustaining their cash flow and find ways of effectively meeting the needs of consumers.”



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